ECONOMY SURVEY HIGHLIGHTS

Economic Survey 2012: India is not Shining

Finance Minister Pranab Mukherjee tabled the Economic Survey 2011-12 in Parliament on 15th of  March, stating the Gross Domestic Product (GDP) is likely to grow 7.6 percent in FY’13. “The growth rate of real GDP (is expected) to pick up to 7.6 percent (plus or minus 0.25 percent) in 2012-13 and faster beyond that,” said Pranab Mukherjee in Parliament. It expects the economic growth to further improve to 8.6 percent in 2013-14. The Survey said fiscal consolidation is likely to get back on track from2012-13, when savings and capital formation will also begin to improve.

          “Moreover, with the easing of inflationary pressure in the months to come, there could be reduction in  policy rates by the RBI, which would encourage investment that could have a positive impact on growth”, it added. Indian economy is likely to slow down to 6.9 percent in 2011-12 from8.4 percent in the previous two years mainly on account of global slowdown and domestic factors. “There were also the pressures of democratic politics, which slowed reforms,” the Survey said while endorsing the Central Statistical Organisation’s (CSO) estimate of 6.9 percent growth during 2011-12. India’s economic growth slowed to its weakest annual pace in almost three years in the three months to December, as high interest rates and rising input costs constrained investment and manufacturing, government data released earlier showed. GDP rose 6.1 percent in October to  December compared with a year earlier. That marked a sharp pullback from6.9percent growth in July to September and was the seventh successive quarterly slowdown.

 The slowdown in Indian economy was attributed largely to weakening industrial growth. The industrial sector has performed poorly, retreating to a 27% share of the GDP. The services sector however continued to be a star performer as its share in GDP climbed from58% in 2010-11 to 59% in 2011-12 with a growth rate of 9.4%. Agriculture and allied sectors were estimated to achieve a growth rate of 2.5% in 2011-12. Agriculture & allied sectors were are estimated to achieve a growth rate of 2.5% in 2011-12 with food grains production likely to cross 250.42 million tones as a result of increase in the production of rice in a number of states. Overall growth during April-December 2011 reached 3.6% compared to 8.3% in the corresponding period of the previous year. The fiscal 2011-12 was marked by a sharp depreciation of the Indian rupee. In the current fiscal 2011-12, on month to- month basis the rupee depreciated by 12.4 per cent from 44.97 per US dollar in March 2011 to 51.34 per US dollar in January 2012. Rupee reached a peak of 43.94 on 27 July 27 2011 and lowest at 54.23 per US dollar on 15 December 2011 indicating a depreciation of 19 per cent. 

  The RBI  was required to sell dollars twice in the fiscal to help raise the value of the rupee. Also in 2011-12 India’s external debt stock increased by US $ 20.2 billion (6.6 per cent) to US $ 326.6 billion at end-September 2011 vis-à-vis US $ 306.4 billion at end-March 2011, primarily due to higher commercial borrowings and short-term debt. The Labour  Bureau conducted twelve quarterly quick employment surveys to assess the impact of the economic slow down on the employment sector. The surveys indicated an upward trend in employment since July 2009 was maintained. Overall employment in September 2011 over September 2010 increased by 9.11 lakh, with the highest increase recorded in IT/BPO(7.96 lakh) sector. The coverage under the MGNREGA consistently increased from4.51crore households during 2008- 09to 5.49crore households during 2010- 11 with averaged employment of 47 person days per household . Average wage increased from Rs 65 in 2006-07 to Rs. 100 in 2010-11. The Survey stated that to strengthen transparency and accountability in the implementation of the MGNREGA, the Government initiated a service delivery project for Information and Communication Technology(ICT) and biometrics related works of the MGNREGA on PPP basis. The real GDP growth is expected to pick up to 7.6% in 2012-13 and 8.6% in 2013-14 as per the survey. Pranab Mukherjee predicted 7.6%GDP growth in 2012-13.

       As per the survey, given that fiscal consolidation is back on track, savings and capital formation should is likely to start rising. Also the RBI policy rates are expected to be reduced in the back of easing of inflationary pressures. The lowered interest rates will encourage investment activity and have a positive impact on growth.

These projections were all made on the basis of assumptions regarding factors like normal monsoons, reasonably stable international prices, particularly oil prices, and global growth. The progressive deregulation of interest rates on savings accounts is expected to raise financial savings and thus improve transmission of monetary policy. Sustainable development and climate change were recognized by the survey as central areas of global concern. The Survey suggested need to examine the linkages and trade-offs between policy rate changes and inflation in the Indian context, for better calibration of monetary policy. The Economic Survey 2011-12 stated that it was essential to make lower carbon sustainable growth a central element of our Twelfth Five Year Plan commencing in April 2012.

The Economic Survey in conclusion mentioned that India is more closely integrated with the world economy as its share of trade to GDP of goods and services tripled between 1990- 2010.Theextent of financial integration, measured by flows of capital as a share of GDP also increased leading to an expansion of India’s role in the world economy.

Following are the highlights of Economic Survey2011-12 :

·  Rate of growth estimated to be 6.9% in FY 12

·  Outlook for growth and stability promising

·  Real GDP growth expected at 7.6% in FY 13

·  GDP pegged at 8.6% in FY 14

·  Agriculture grows at 2.5% growth in FY 12

·  Services grow at 9.4 %, in FY 12, share in GDP at 59%

·  Industrial growth pegged at 4-5 % in FY 13

·  Industry expected to improve as economic recovery resumes

·  Inflation on WPI was high, but shows signs of moderation

·  Inflation moderation likely to spur investment

·  WPI food inflation dropped from 20.2% in February 2010 to 1.6% in January 2012

·  Calibrated steps initiated to contain inflation

·  India remains among the fastest growing economies of the world

·  India’s sovereign credit rating rose by 2.98 percent in 2007-12

·  Fiscal consolidation on track

·  Savings & Capital Formation expected to rise

·  Exports grew at 40.5%in H1

·  Imports grew by 30.4%in H1

·  Foreign trade performance key driver of growth

·  Forex  reserves enhanced, cover nearly the entire external debt stock

·  Central spending on social services up at 18.5% in FY 12 Vs 13.4% FY 07

·  MNREGA coverage of 5.49 crore households in FY 11

·  Sustainable development and climate change high priority

·  Tenuous global economic environment turned sharply adverse in September, 2011

·  Euro-zone crisis responsible for international downturn

·  Slowdown of Indian economy due to global, domestic factors

·  Decline in overall investment rate cause for slow recovery

·  Gross capital formation inQ3of FY 12 as a ratio of GDP at 30%, down from32% in FY 11

·  Global economy remains fragile; efforts needed through G-20 for stability

·  Progressive deregulation of interest rates on savings accounts recommended

·  Deregulation of interest rates on savings accounts to help raise financial savings and improve transmission of monetary policy

·  Need deepening of domestic financial markets, especially corporate bond market

·  Efforts on to attract dedicated infrastructure funds

·  India’s foreign trade performance key driver of growth

·  Balance of Payments widens to USD 32.8 bn in H1 of FY 12 Vs USD 29.6 bn FY 11

·  Forex reserves up from USD 279 bn in March ’10 toUSUSD305 bn inMarch’11

·  India now more closely integrated with the world economy

·  India’s share of trade to GDP of goods and services in world tripled in 1990-2010

·  India’s flows of capital as a share of GDP in word increased dramatically in last two decades Inflation

·  Inflation to moderate further in FY 13

·  Renewed focus on supply side measures essential for price stability

·  Inflation expected to moderate at 6.5-7% by March end

·  Gap between WPI and CPI inflation narrows in FY 12

·  Milk, eggs/meat/fish, gram & edible oils major drivers of food inflation

·  Monetary policy measures taken to contain inflation

·  Substantial Monetary policy challenge to rein-in inflation

·  RBI addressed liquidity concerns

·  Monetary market remained orderly in FY 12 2011-12

·  Need to examine linkages between policy rate changes and inflation

·  Threat from asset price bubbles in real estate and stock markets

·  Scope to further sharpen monetary policy and use macro prudential to deal with above said threats

·  Unexpected shocks such as oil prices remain inflationary threats

·  High level of food stocks to help maintain overall price stability

MEASURES FOR PRICE STABILITY IN FOOD ITEMS

·  Need guidance for farmers on fertilizers, insecticide, alternate cropping patterns

·  Need strategy, regular imports of agriculture commodities in smaller quantities

·  Need to set up special markets for special crops

·  Improve Mandi governance

·  Need to promote interstate trade

·  Perishable food items should be taken out of ambit of the APMC Act

·  FDI in multi brand retain will fill infra gap during harvest period

·  Need to step up creation of modern stores facilities for food grains Agriculture

·  FDI in multi-brand retail recommended

·  Higher levels of agricultural output augur well

·  Concerns over growth rate in agri sector falling short of target

·  Agriculture grows at 2.5%Vs target of 4%in five yr plan

·  Agriculture, allied activities account for 13.9 % of GDP in FY 12

·  Food grains stocks at 55.2 million tonnes

·  Production of food grains in FY 12 estimated at 250.42 million tones

·  Speedy improvement in yield through adequate investment in R&D needed

·  Agri infra priority area

·  Agri outlook for next fiscal bright Industry

·  Industrial growth pegged at 4-5% in FY 12

·  Industrial growth less than recent past and far below potential

·  Need to boost business sentiments, encourage investment and identify bottlenecks

·  Industrial sector expected to rebound during next financial year

·  Industry expected to rebound with inflation easing, moderation in commodities prices in international market and revival of manufacturing performance

·  Long term average annual growth of industries comprising mining, manufacturing and electricity remain aligned with overall GDP growth rate

·  Employment in Industry increase from16.2%in 1999-2000 to 21.9% in 2009-10 largely due tp construction sector

·  Contraction in production in the mining sector, particularly in coal and natural gas segments

·  Electricity sector witnessed improvement

·  Basic goods and non-durables goods grew at 6.1%

·  Moderation in growth in other segments of IIP

·  Negative growth observed in capital goods and intermediates segments

·  Gross Capital Formation in industry as percent to the overall GCF moderated to 48.3% in FY 11

·  Manufacturing GCF growth rate declined to 7% in FY 11 Vs 42% in FY 10

·  Moderation in rate of growth of credit in infrastructure and manufacturing sectors

·  Need to address land acquisition and infra issue on priority Services Sector

·  Services sector proves saviour during global crisis

·  Services grow by 9.4% despite slowing GDP growth

·  Share of services in GDP at increased from 55.1% in FY 11 to 56.3% in FY 12

·  Financial &non-financial services, IT, Telecomm, Real Estate constituted 41.9 % of total FDI equity inflows during April 2000- December 2011

·  FDI inflows to the Services Sector slowed down FY 10 & FY 11, dipping to negative zone

·  FDI inflows in FY 12 recovered; increased by 36.8 % to USD 9.3 billion (April-Dec)

·  Slight moderation in services growth no cause of worry

·  Moderation due to the steep fall in growth of public administration and defence services reflecting fiscal consolidation

·  Growth in trade, hotels and restaurants robust at 11.2%

·  Retail-sector growth expected to be even more robust in FY 13

·  Worry areas include real estate ownership of dwellings and business services segment

·  Software service exports steady; face threat from Eurozone

TRADE

·  India’s exports grew at 23.5% to reach USD 242.8 bn  in April 2011 - Jan 2012

·  Exports decelerated in Oct-Nov due to global downturn; recovered in Dec-Jan

·  Key performers in export – petroleum and oil products, gems and  jewellery, engineering, cotton fabrics, electronics, readymade garments, drugs

·  Imports up 29.4%duringApril- Jan 2011-12 at USD 391.5 bn

·  Key import areas-POL (petroleum, oil and lubricant), gold and silver

·  Trade deficit in April-Jan 2011-12 at USD148.7 bn Vs USD 105.9 billion inlast fiscal

·  Diversification of export and import markets a success

·  UAE India’s largest trading partner, followed by China

·  India’s services exports bounce back after contraction in FY 10

·  India’s services exports grew 38.4 % to USD 132.9 bn in FY 11

·  Growth in export of services moderated in H1 FY 12 to 17.1%

·  Software exports may show some sluggishness

·  Trade challenges include global situation, systemic problems

·  Further diversification of India’s export basket needed

·  Facilitate trade by removing procedural delays, red tape

·  Infrastructural bottlenecks need to be removed

·  Total investment in SEZs till31Dec 2011 at Rs. 2,49,630.80 crore

·  Formal approvals granted for setting up of 583 SEZs of which 380 notified

·  Forex Reserves at USD 293 bn

·  External Debt Stock at USD 326 bn

·  Oil, Gold and Silver prices contribute to modest rise in current account deficit

·  Net capital flowsatUSD41.1 billion (4.5% of GDP) in the H1 of FY 12

·  External commercial borrowing at USD 10.6 billion inH1 of FY 12

·  Portfolio investment shows large decrease ininflowtoUSD1.3 bn in H1 of FY 12

·  Trade deficit more than8%ofGDP and current account deficit more than3%sign of growing imbalance in BOP

·  High share of volatile FFI flows added external shock Infrastructure

·  Performance of broad sectors and sub sectors in key infrastructure areas presents mixed picture

·  Achievements in certain infrastructure sector ‘remarkable’

·  Need to attract large scale investment into infrastructure

·  Public-Private Partnership successful model

·  PPPs expected to augment resource availability, improve efficiency

·  Investment requirement at USD 1 trillion during Twelfth Plan

·  50% investment to come from private sector as against the 36% anticipated

·  Financing infrastructure a big challenge

·  Improvement in growth in power, petroleum refinery, cement, railway freight traffic, passenger handled

·  Coal, Natural Gas, Fertilizers, handling of Export Car goat airports and number of cell phone connections show negative growth

·  Steel sector witnesses moderation in growth

·  Core and infrastructure sector still depends on public sector projects

·  Delays increase project risk and cost, and need to be minimized

·  Credit growth to infrastructure sector turned negative in FY 12

·  Incremental credit flow to the infra sector in April-December 2011 nearly 61% in same period year before

·  Reduction in credit flow in power and telecom sectors

·  Total FDI inflows into majors infrastructure sectors during April- December 2011 registered growth of 23.6%

·  Challenges on form plate auing of the domestic savings and macro availability of resources

·  Need for innovative schemes to attract large-scale investment into infrastructure

·  Strengthening domestic financial institutions and development of long-term bonds market critical Rupee

·  Rupee falls by 12.4 % against USD

·  Rupee falls from44.97 per USD in March 2011 to 51.34 per USD in January 2012

·  Rupee’s high volatility impairs investor confidence

·  Aggressive stand to check Rupee volatility recommended

FINANCIAL MARKETS

·  Volatility in global financial markets likely to tighten availability and cost of foreign funding

·  Government measures mitigate liquidity stress

·  Indian banks robust amidst Eurozone crisis

·  Financial infrastructure continues to function without any major disruption

·  Indian financial markets, especially currency and equity, performed under pressure in FY 12

·  Global market turmoil caused risk aversion and moderation in capital inflows

·  Countervailing steps helped mitigate strains

·  Global situation, rising trade imbalance, pace of reform initiatives to boost capital flows

·  Domestic growth concerns likely to influence financial markets movements

·  Concerns over Greece’s sovereign debt problem spreading to India v Banking business may become more complex and riskier in future with greater global integration

·  Riskand  liquidity management, skill enhancement necessary

·  Need to maintain sustainable levels of external debt

·  Need innovative steps to bring corporate bond market at the centre stage

·  Infrastructure financing and financing of unorganized micro/ small business sector needed Banking and Micro Finance

·  Public sector banks show 19 % growth in priority sector lending

·  Credit Disbursement to agri sector exceeded target by 19 %

·  Credit Disbursement helped over 12.7 mn new farmers

·  98 % public sector bank branches fully computerised

·  Self Help Group- bank linkage programme major success

·  Capital in banks essential for balance sheet expansion

·  Rs 12,000 provided in FY 12 for capital infusion in public sector banks

·  Growth in bank credit extended by Scheduled Commercial Banks grew at 17.1%

·  Flow of agricultural credit impressive

·  Infrastructure Debt Funds to facilitate flow of funds into infrastructure projects

·  Resource mobilization through primary market shows sharp decline in FY 11 Environment and Climate Change

·  Lower carbon sustainable growth to be central element of 12th plan

·  India’s per capita CO2 emissions much lower than those of developed countries even if historical emissions are excluded

·  Need for more sensitivity from developed countries to carbon emissions

·  Economic pricing of energy, new technologies to be the key

·  India has taken voluntary actions to pursue sustainable development strategy

·  Warming planet may cause adverse effects, extreme weather events

·  India has stepped up protection of its natural environment, forests

·  Five main challenges include climate change, food security, water security, energy security and managing urbanization

·  Broad-based economic and social development answer for greater sustainability Education and Employment

·  Reform process in education continued INFY 12

·  Aakash, low cost computing device launched

·  Sarva Shiksha Abhiyan norms revised to correspond with the provisions of the RTE Act

·  National Council for Teacher Education notified as the academic authority for teacher qualifications

·  Number of out-of-school children down from 134.6 lakh in 2005 to 81.5 lakh in 2009

·  Need to scale up the successful centres of innovations, create higher technical institutions

·  Labour  Bureau Survey indicates upward trend inemployment since July 2009maintained

·  Employment in organized sector increased by 1.9 % in 2010

·  Share of women in organized sector employment at 20.4% in 2010March end

·  MGNREGA: Coverage increases to 5.49 crore households in 2010-11

·  Government sets up committee for developing index for fixing MGNREGA wage rates